Ten Benefits of Expatriation, Part II

In yesterday’s edition of The Daily Reckoning, Casey Research shared five of the Ten benefits of expatriation. Today, we share the second five:

1) Freedom to invest without tax distortions that encourage capital misallocation. The US tax system encourages misallocation of your investment capital. It obscures the act of buying and selling securities based on a rational assessment of their value. For instance, you end up not selling a security you otherwise would simply because you don’t want to trigger taxes yet. Or you hold on longer than you might otherwise to get long-term capital gains treatment. Or you sell securities you normally would keep – for “tax loss harvesting.”

Moreover, you’re incented to give an artificial value premium to municipal bonds simply because they aren’t taxed, despite their negative real return after inflation. And your assessment of real estate’s value is warped too, by mortgage interest deductions and capital gains exemptions. The phrase “letting the tax tail wag the dog” encapsulates these distortions. Expatriation instantly liberates you from them.

2) Freedom from being crushed by the fiat currency landslide. If you pay attention to the world’s major currencies, you’ll notice they fluctuate, often dramatically, against each other. In a year’s time, the price of an item can increase or decrease 20%, 30% – sometimes more – solely based on which currency you use to pay for it. The same item!

Regardless of the reason for the volatile swings in the value of currencies, there it is. Reality. So what’s the risk for you? For one thing, you can have all your money in one currency, earn a positive investment return on paper (that you’re taxed on), but actually lose purchasing power. Think about it this way. The US imports goods from all over the world. When the US dollar drops in value, it takes more of them to buy those goods. That makes you functionally poorer, no matter what your account statement says. It’s that simple.

Every time the dollar drops, you get the short end of the stick. The value of your savings erodes. Your money is like ice cubes. The longer you wait to use them, the more they melt. According to the government’s official “inflation calculator,” the dollar has lost 95% of its purchasing power since 1913. See for yourself here.

When you’re out of the global US tax net, you can freely diversify the currencies you own to protect your purchasing power from being diluted. If you do this as a US citizen and the dollar drops, you’re taxed on the paper gains from those other currencies. In other words, you’re taxed for simply preserving your purchasing power. And if you choose the monetary metal, gold, as a fiat currency hedge, you’re taxed even more heavily. No matter what you do to try and preserve the purchasing power of your dollars, one way or another you’re slowly being bled. That ends on the day you expatriate.

3) Freedom from the accountability for how the US government spends your money. I sleep much better knowing I no longer fund the military-industrial-banking complex. Anybody can get mugged, but every US taxpayer is a constant patsy for the political establishment. The rip-offs are so unthinkably big and endemic, there’s nothing an individual can do to stop them.

If you step back and take an honest look, you’ll see that the unfortunate state of affairs in America has resulted from the reign of both political parties. Don’t fall for the divide-and-conquer strategy that politicians use to corral people into “red” and “blue” sports teams. Donkeys and elephants are sold as team mascots pretending to be in mortal conflict. In reality both parties work together to advance their agendas in lockstep…logrolling…and when necessary, one side “takes the hit” whenever the illusion of accountability is needed. The system depends on the delusion that people can “vote the bums out.”

Meanwhile, every government failure becomes the pretext for more government growth. If you don’t get distracted by the spectacle, it’s impossible not to notice the pattern: Every political solution to any problem involves more regulation of your life and more taking of your money.

What are the consequences of this vicious cycle of growth through failure? Most Americans are familiar with the oft-chanted phrase, “We’re #1!” Humor me for a minute and try this exercise. Mentally separate yourself from the government you’re paying trillions of dollars to fund. Then, consider that the US is: #1 in government debt and deficits; #1 in unfunded liabilities, most importantly Medicare and Social Security; #1 in building and maintaining the biggest WMD stockpile in the world; #1 in weapon sales to foreign governments; #1 in bombs dropped and missiles fired on other nations; #1 in causing civilian casualties and property destruction; #1 in “defense” spending; #1 in lawyers per capita, with over 1.1 million total; #1 in law suits filed; #1 in political lobbyists, special interest groups and campaign donations; #1 in taxpayer bailouts of the politically connected “too big to fail” corporations; #1 in people imprisoned – “The United States has 4% of the world’s population and 25% of the world’s incarcerated population,” according to Wikipedia.

I’ve avoided citing sources for these claims (save the last one) because I’m hoping you’ll be moved to verify them for yourself. The process is eye-opening. If you fall for the political fallacy that “the government is the people,” you end up with the faulty conclusion that America must be overrun by war-crazed, lawsuit-happy, debt-addicted criminals. How could anybody buy this after even a moment of clear thought? There’s certainly no resemblance to the American people I know. These problems stem from the military-industrial-banking complex, the dark heart of the US political machine. Why continue being the stooge that supplies the money to run it?

Looking at the world with fresh, open eyes isn’t easy. One of the great benefits of liberating yourself from the grip of the US political system is that the world becomes your oyster. You’re free to embrace places that welcome individuals who seek to live peaceful and prosperous lives.

4) Freedom to radically increase your charitable giving. Individual liberty sparks our charitable instincts. If you care deeply about philanthropy, expatriation frees up vastly more of your capital to give away. Also, your philanthropic impulses are no longer distorted by the IRS. You can give to any charitable cause worldwide without being penalized if it’s not anointed as a tax-deductible entity.

The human impulse to help another in need is older than any government. Your judgment about how to contribute your capital to best help others will forever be superior to that of bureaucrats. Expatriation opens up new possibilities for you to reach out and help others in need.

5) Freedom from the risk of getting trapped. Politicians don’t like it when the people who pay their salaries, fund their pensions, and fuel their jets close their wallets and walk away. As the number of renunciations continues to rise, it inevitably will turn into a political hot-button. The media will set the stage for politicians to denounce renunciation, paving the way to make exercising the right more difficult and costly. Wealthy people who renounce will be called greedy and unpatriotic. “Turning their backs on their fellow Americans” will be the sound bite wielded by politicians to conjure up the demand to “do something.” When that happens, I expect the exit tax to become dramatically worse. Instead of taxing unrealized gains at their regular rates, it may function more like the death tax. Add up everything you own – then cough up half. Otherwise sit down and shut up.

The other timing consideration is that getting a second passport is becoming more difficult, more lengthy and more costly. You need a second passport to expatriate, and countries are increasing the number of years it takes to gain citizenship. There are only two countries left in the world that have an economic citizenship program, which is by far the fastest way to get a second passport. If these two programs are pressured to fold, escaping the US political combine will take most people five or more years, instead of less than one. You can bet on this: No matter what happens, it won’t get any easier.

The Casey Research Team,
for The Daily Reckoning